Guest blog written by Dzhygyr Yuriy
This is a blog series written by the alumni of the Leading Economic Growth Executive Education Program at the Harvard Kennedy School. Participants successfully completed this 10-week online course in July 2020. These are their learning journey stories.
Through past two decades, Ukraine has been steadily descending the Atlas economic complexity ranking list, going down from #30 in 2001 to #50 in 2016. At the lowest border of the second highest quintile, it is a relatively advanced economy and was assessed by Ricardo Hausmann’s international complexity simulations as having a significant potential to “move in all directions”. However, it currently remains invariably focused on agriculture and metals, exporting mainly to the immediate neighbors (Russian Federation and Poland), and has been gradually retreating from the more complex markets such as for vehicles, industrial machinery, optical and medical equipment.
The 2013-2014 social, political and economic crisis – which inspired the Revolution of Dignity, a change of government and a reversal of the geopolitical orientation – has created a hope for a new development strategy. However, five years down the road, many of the post-Maidan reforms are losing traction, calling for an audit of what went wrong.
In the hindsight, the problems targeted by the post-Maidan policies strike as remarkably astute. Most of these policies tried to address the low quality of public services – one of the core issues which enraged taxpayers and illustrated the state’s failure in 2013. But these reforms were not only in popular demand; they also happened to intuitively react to strong price signals of an extreme growth constraints.
The most striking example was the system of government-funded healthcare. By 2013, 92% of Ukrainians reported being terrified of catastrophic out-of-pocket costs if they get ill. Although the bulk of medical services in the country were tax-funded and provided by public facilities, de facto more than a half of costs were paid out of pocket through an entirely unregulated black market. Given the extreme information asymmetries, lack of competition and conflicts of interest, actual prices for healthcare in Ukraine have skyrocketed, exceeding the EU countries. Furthermore, while the state was failing to ensure quality control and continuous professional development of medical workers (reflected in the rapidly deteriorating health outcomes in the general population), selected categories of doctors were able to enjoy unusually high informal incomes despite the uncertain quality and safety of their services. The overpriced and unreliable healthcare was not only diverting private resources from productive investment, but also failed to provide the sense of economic security, social cohesion, and a robust state, ultimately depressing “animal spirit” throughout the society. This system of healthcare funding was also intrinsically obstructive to labor mobility within the country since access to services strictly dependent on the place of official residence.Continue reading Learning to Crawl: Can a Health Financing Reform Unshackle Ukraine’s Growth Potential?